Small Businesses Rejoice: House Introduces Bill to Clarify Tax Audits and Establish More IRS Protections

By Jesse Doris

American taxpayers and businesses of all sizes have an important reason to celebrate. Representatives Jason Smith (R-MO-8), Terri Sewell (D-AL-7), George Holding (R-NC-13), Judy Chu (D-CA-27), Carlos Curbelo (R-FL-26), and Mike Thompson (D-CA-5) introduced the Preserving Taxpayers’ Rights Act. This bipartisan bill not only improves important provisions within the Internal Revenue Service’s (IRS) auditing process, but it also implements much-needed protections to make the auditing process clearer, more user-friendly, and more cost-effective for innovators across the app ecosystem.

Our country’s app developers and small businesses depend on smart tax policies that support their ability to grow and innovate. This bill will update and address several procedural challenges that small businesses face when responding to IRS audits.

First, the legislation will allow taxpayers to resolve tax audit issues in the IRS Office of Appeals, before they are required to litigate in Tax Court. Tax Court litigation is often expensive and time-intensive; therefore, this change will have meaningful cost-saving benefits for small businesses.

Second, the bill restricts the ability of the IRS to designate cases for litigation. With this change, the IRS can only litigate “listed transactions,” or those that have a high probability of being related to tax avoidance. Most small businesses keep their own books, or hire small accounting firms to prepare their tax returns. Considering the complicated nature of the tax code, small businesses are just as likely to make mistakes as multinational corporations. The Preserving Taxpayers’ Rights Act would provide important protections for well-intentioned app developers not engaged in legally questionable transactions, and empower small businesses to defend their rights at the IRS.

Third, the legislation would provide important clarity and protections for small businesses by aligning requirements to ensure that the designated summons only targets uncooperative taxpayers trying to run out the clock on the statute of limitations. It will change the process by which the IRS issues a designated summons to address an expired statute of limitations to conduct a tax audit. The Preserving Taxpayers’ Rights Act shifts the burden to the IRS, and requires them to provide a review and receive written approval of their designated summons to demonstrate that the taxpayer was uncooperative within the audit process.

Fourth, the Preserving Taxpayers’ Rights Act protects individuals and businesses of all sizes by limiting the types of sensitive tax information that may be accessed by outside firms during a tax audit. This bill not only seeks to simplify the tax audit process for the government and taxpayers, but it also helps preserve the integrity of taxpayers’ private, sensitive data, and prevents it from getting into the hands of parties with nefarious agendas.

ACT | The App Association commends Representative Jason Smith, his bipartisan co-sponsors, and the Coalition for Effective and Efficient Tax Administration (CEETA) for examining the challenges within the current audit system and seeking to improve its process. Procedural protections during an audit increase efficiency and provide cost-saving benefits, which allow our members to focus on their innovation and growth. We applaud the House sponsors for introducing this bill, and we encourage other Members of Congress to move this important, bipartisan legislation forward.